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The Much-Anticipated PPP Loan Extension

Fulcrum Partners. Fulcrum Partners News

The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) (i.e., the PPP loan extension) has been signed into law. After receiving U.S. Senate approval on June 3, 2020, the amendment to the Small Business Act and the CARES Act was finalized on June 5, with the signature of President Donald Trump. 

Updating the Paycheck Protection Program of the Small Business Administration, the PPPFA adds much needed flexibility to the timing and forgiveness options than was allowed by the original PPP Act. 

Primary Changes Included in The PPP Loan Extension

  • Expansion of the covered period from 8 weeks either to 24 weeks from the date of loan origination or to December 31, 2020, whichever comes first. 
  • A reduction to 60 percent from the originally set 75 percent, in the amount of forgivable expenses that must be used exclusively for payroll costs. 
  • Extension of the period for restoration of full time equivalent* (FTEs) or salaries or wages from June 30, 2020 to December 31, 2020. 
  • The addition of two new exceptions to the requirement that borrowers must restore their FTEs to February 15 levels. These exceptions are (1) when a borrower cannot find qualified employees for unfilled positions or (2) when a borrower cannot restore operations to comparable levels of business due to social distancing requirements, sanitation requirements, or other issues of customer safety. Applicable requirements would be those established by Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 1, 2020, and ending December 31, 2020.
  • The maturity date for any loan amounts not forgiven have been extended from two years to five years and the deferment period is extended from six months to the date the borrower’s loan forgiveness amount is determined.
  • PPP borrowers will also be allowed to take advantage of the existing payroll tax deferrals permitted for businesses under the CARES Act. Borrowers may defer 50 percent of the employer’s share of payroll taxes until 2021 and the remaining 50 percent until 2022.

Wise Changes to a Well-Received Component of the CARES Act

With the initially established 8-week loan window coming up quickly for many businesses that received PPP loans, the changes implemented by Congress came just in time. The added flexibility in the loan forgiveness process was critical, particularly for businesses such as restaurants that simply could not profitably ramp up to previous levels of service, paying a full staff of workers and at the same time meet new regulatory guidelines for social distancing. 

On June 2, 2020, the National Federation of Independent Business (NFIB) released a survey taken on May 29 in which over 300,000 small business owners participated. Among the owners surveyed, 77 percent of those in small businesses applied for a PPP loan, 93 percent of whom received the loan. Even then, over a month before the PPP Loan Extension came into effect, 80 percent of small business owners reported the loan was either moderately helpful (14 percent) or very helpful (66 percent). 

Putting even more specific numbers to the value of the PPP loan program, SBA Regional Administrator Steve Bulger, who oversees the agency’s operations in two of the most heavily affected parts of the country, was quoted in Forbes as saying, “Our data shows that 826,696 small businesses received $103,936,930,794 in the SBA’s Atlantic and Mid-Atlantic regions combined. PPP is going a long way to meet the demand of small businesses and their employees during this critical time.”

#CARESAct #PPPLoan #PPPLoanForgiveness #PPPFA #COVID19

*Full time equivalent (FTE) “The calculation of full-time equivalent (FTE) is an employee’s scheduled hours divided by the employer’s hours for a full-time workweek. When an employer has a 40-hour workweek, employees who are scheduled to work 40 hours per week are 1.0 FTEs.” Source: https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/calculateftehours.aspx

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

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